Your Credit with your Auto Loan
A low credit score can make getting a loan you need more
difficult than you might realize. You may find yourself being refused a
mortgage or credit cards, even if you have a steady income. Improving a low
credit score to a higher level will help improve your eligibility for
future loans, but how can you actually do this if you can’t find a lender
willing to make you a deal in the first place?
Auto loans are a terrific way to boost your credit score,
and car dealerships are much more likely to offer you an auto loan regardless
of a poor credit rating. A car loan can be enough to demonstrate to other
potential lenders that you are a low-risk applicant, paving the way for easier
applications and fewer unmanageable debts.
There are two types of credit: revolving and installment. Revolving
credit is based on a variable structure, with changing balances and
payments. Credit cards fall into this category, as you can charge different
amounts each month and pay your balance off as you see fit, as long as you pay at
least the minimum monthly amount due.
credit involves borrowing a fixed amount and adhering to set payments; you
cannot borrow more or pay less than the agreed amount each month. These tend to
be referred to as ‘closed-end’ accounts. Both types of credit appear on your
report, but installment loans show that you are able to stick to a scheduled
plan. If you can pay off your auto loan, lenders will view you as a worthier investment
The specifics of your car loan will differ depending on the
type of vehicle you need, the term, and your income. Dealerships tend to work
with a wide range of lenders and will discuss your personal situation in depth.
This usually helps to match your needs with your capacity to pay and prevents
unrealistic rates that will only be problematic.
As your car loan is at a fixed rate that you and the
dealership agree upon and is paid back over a scheduled term, you can rest
assured that you will know exactly what’s expected of you from one month to the
next. There is no risk of the amount you owe fluctuating, leaving you unable to
meet the monthly payment. However, it’s still vital that you continue to make
all of your car loan payments on time, every time. Though you may have a grace
period, avoid actually using this as much as possible. The grace period allows
you a little more time to get the payment together (typically just a few days)
without facing a charge for lateness. While the grace period is helpful in
emergencies, it can make a negative impact on your credit score and suggest to
potential lenders that you may not necessarily be as reliable as you first
You need to make sure that your car loan has no prepayment
penalty in the agreement. This means that if you were to get ahead in your
payments, or completely pay the entire loan off far earlier, you could face a
serious charge. Although the prospect of clearing your debt as soon as possible
might seem unlikely, especially if you have money worries, there is no telling
whether you will have the funds to do so in the future. Having this option open
to you, without the fear of increasing your debt, can be a major advantage.
An auto loan can make a big, positive difference to your
credit rating, but you need to be prepared. The first thing you need to be sure
of is that you can actually afford a car without leaving yourself ill-equipped
to cover other expenses that you have. For example, if you are already in debt
to other lenders, consider whether you will be able to juggle these demands
with monthly payments on a new car. It may be best to focus on paying off one
or two of your debts first, leaving yourself more money with which to invest
into an auto loan.
Still, used car dealerships are as important to Americans
than ever today, and you will often get a better deal for your money at a local
used car business. Used car dealerships will be more likely to offer instant
approval for loans on all credit types, even if you have no credit at all. How
is this possible? Well, perhaps you want or need a vehicle but have never had a
credit card or any other loan. Someone living at home until their late twenties
or thirties may fall into this bracket, especially if they have saved as much
money as possible to buy their own property without needing to rent or be
Many lenders, particularly banks, would see a potential
borrower with no form of credit history as a major risk. They have no way to
know how reliable the individual is likely to be and leave them unable to
secure the money they need so badly.
the Right Choice
Another way to prepare for your auto loan is to pick the
right vehicle. Though you may want to get behind the wheel of your dream car,
with a sleek body and an engine that purrs, you need to consider whether the
extra cost is worth it.
Focus on the car you need rather than the one you want.
Consider your everyday demands and responsibilities. Do you need a vehicle just
to get from home to work, and back again? Do you have to drive the kids to
school and back, as well as running lots of errands on a daily basis? Concentrate
on your priorities and avoid letting the sharpest looking car drive you into
debt you can’t manage. Getting the right auto loan for your income, your
lifestyle, and your future can help you to build your credit score to a higher level.
Whatever you do, stick to your monthly payments, make sure
there are no prepayment charges, and choose a dealership with a solid
reputation. Over time, your credit report will show that you are a reliable
borrower capable of paying back any loan in the years to come – and just think
how much easier getting the money for that dream car will be then.
So why should you choose Eden Autos as
the dealership to buy your next car from? In addition to offering numerous financial solutions for
customers with challenging credit ratings, we are committed to providing the
best hassle-free buying experience in the Delaware Valley. We have over 150
quality pre-owned vehicles in stock to choose from, and each comes with a 5-Day
Unconditional Money-Back Guarantee. And every car and ruck we sell also comes
with a Free Carfax Report and a 3-Month or 4500-mile Bumper-to-Bumper Warranty.
So, stop by our dealership today and meet with one of our friendly,
members, or view our inventory